# McHuffter Condominiums, Inc., of Pensacola, Florida, recently purchased land near the Gulf of Mexico and is attempting

## Question:

McHuffter Condominiums, Inc., of Pensacola, Florida, recently purchased land near the Gulf of Mexico and is attempting to determine the size of the condominium development it should build there. Three sizes of developments are being considered: small, d1, medium, d2, and large, d3. At the same time an uncertain economy makes it difficult to ascertain the demand for the new condominiums. McHuffter's managers realize that a large development followed by a low demand could be very costly to the company. However, if McHuffter makes a conservative, small-development decision and then finds high demand, the firm's profits will be lower than they might have been. With the three levels of demand-low, medium, and high-McHuffter's managers prepared the payoff table as follows:

If P (low) = .50, P (medium) = .35, and P (high) = .15, what decision is recommended by the EV criterion?

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